As the White House begins ordering federal government agencies to shut down, industry can still expect the Securities and Exchange Commission (SEC) to police financial markets and send inspectors to investment firms registered with the agency.
The market regulator has enough cash leftover from last year’s budget to remain open for business for at “least a few weeks”, estimates David Lynn, former chief counsel at the SEC’s division of corporation finance, who is now a partner with law firm Morrison & Foerster.
The SEC declined to comment when asked how long it expects to function using its carryover balances.
If the US Congress is unable to reach a budget deal before the SEC’s emergency reserves are exhausted, fund advisors can expect a few disruptions.
Issuers can submit filings to the agency’s electronic filing systems but the SEC will not process IPO filings and other submissions in the event of a lapse in appropriations. Under this scenario private equity firms could not exit portfolio companies via the public markets.
Ahead of a possible shutdown, the SEC “may be working in overdrive to finish processing filings already submitted,” said Lynn, who was with the SEC during the last government shutdown in 1995-1996, when the agency also remained open using leftover funds.
SEC inspections would also be furloughed if Congress fails to act in the short-term, meaning GPs registered with the agency would not face on-site examinations or receive deficiency letters.
In a shutdown, the SEC plans to suspend all non-emergency rule-making, requests for advice, “no-action letters” and its regular oversight of the Public Company Accounting Oversight Board.